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Compromise would set 2 percent cap on LG&E franchise fee

Sheldon S. Shafer, The Courier-Journal;
11:16 a.m. EDT June 4, 2014

A view of the LG&E coal fired power plant near the former Lee's Lane Landfill. May 29, 2014(Photo: Alton Strupp/The Courier-Journal)

Hoping to get around rising opposition, Louisville Metro Council leaders have hashed out a compromise that would reduce Mayor Greg Fischer’s proposed franchise fee on natural gas from 3 percent to 1.5 to 2 percent.

The compromise also would limit the fee to one year, during which the city would negotiate a longer-term franchise fee agreement with Louisville Gas & Electric Co., said Councilman Kelly Downard, R-16th District. He said he reached agreement on the measure with Metro Council President Jim King, D-10th.

At Thursday night’s council meeting, they will propose the compromise that by late Wednesday had a dozen co-sponsors, effectively ensuring the measure will pass, despite Republican opposition.

The nearly $3 million officials say the franchise fee would gather would be used to help hire 24 new police officers, as well as pay for police overtime and criminal prosecutions.

The compromise also would transfer $1.8 million from the capital projects budget to help cover those costs. Specific projects that might be cut haven’t been determined.

Even so, Downard’s eight fellow Republican council members remained strongly opposed to the franchise fee in any form, calling it a new tax.

They issued a news release late Tuesday urging all local residents to call or email their council members, telling them to reject the original 3 percent fee proposed by Fischer. And Downard acknowledged Wednesday that they are unlikely to budge.

Fischer proposed the 3 percent franchise fee on natural gas last month, saying much of the revenue would go for public-safety improvements, including hiring additional police officers. City officials say it would add about $20 a year on consumers’ bills — raising about $5.4 million annually for the city.

The LG&E fee would pay for its right to lay lines over city-owned public right-of-way and would not apply to electricity, or to residents living in more than 80 incorporated small cities within Jefferson County, where Metro Government cannot legally assess the charge.

Downard said a 2 percent fee would raise about $3.6 million, and a 1.5 percent fee about $2.7 million.

Downard pledged that the Metro Council can shift money to make up for the smaller fee increase and still implement all of Fischer’s planned public-safety improvements. Officials consider them of paramount importance following the March 22 string of violence by a teen mob that rampaged across downtown.

“We have to find a way to pay for the safety improvements. We may disagree on how to get there, but they will happen,” Downard said Wednesday morning.

Haag said the eight Republicans opposing any fee are trying to find ways to pay for at least some of the safety enhancements, without putting additional burden on taxpayers.

Ackerson, the lone council Democrat on the record against the fee, said in an interview Wednesday that the fee is a disproportionate tax that would fall most heavily on residents of western and southern Metro Louisville — because it couldn’t be applied in the suburban cities, the vast majority of which are concentrated in eastern Jefferson County.

“Any fee is the wrong thing to do,” Ackerson said.

Chris Poynter, Fischer’s chief spokesman, pressed to comment on the pending franchise fee compromise, said he wouldn’t comment beyond a statement he released that said the administration “appreciates the give-and-take of the budget process and we look forward to further discussions with Metro Council."

Under an agreement that dates to 1998, LG&E has been paying the city $600,000 a year for the use of city-owned right-of-way. That annual payment would disappear, if a franchise fee is approved.

The Metro Council budget committee voted 4-3 last week to recommend that the full council approve a measure that would allow Fischer to modify and extend the current franchise agreement with LG&E for up to two years — with the limit of a 3 percent fee on gross revenues of natural gas sales.

Council leaders learned that state law requires franchises be bid out through a request for proposal and that cities are required to have a franchise agreement with utility companies. King and Downard successfully proposed a route that would allow Fischer's office to complete the proposal process, while there is a renegotiated agreement in place.

The administration said the increase would be applied to bills beginning in December. Many other cities in Kentucky have utility franchise fees of 3 percent or higher.

Jerry Clark, a semi-retired resident of southern Louisville, called the franchise fee “a back-door tax.” He added that “$20 to a rich guy doesn’t mean much. But to a poor person, it’s a lot.”

Reporter Sheldon S. Shafer can be reached at (502) 582-7089. Follow him on Twitter at @sheldonshafer.

Downard said a 2 percent fee would raise about $3.6 million, and a 1.5 percent fee about $2.7 million.